In May 2018, the EU Commission presented a series of measures to implement its Action Plan: Financing Sustainable Growth (EU Commission Action Plan). These measures aim to reorient capital flows towards sustainable investment, mitigate the impact that climate change, as well as social and environmental issues, have on the financial system, and increase transparency and long-term finance.

Since then, numerous developments at different policy levels and institutions across the European regulatory landscape have been materializing on a weekly basis, integrating various elements of the EU Commission Action Plan.

Overview of the EU Commission Action Plan’s regulatory developments:

Three legislative proposals form the backbone of the EU Commission Action Plan:

• Regulation on Disclosures Relating to Sustainable Investment and Sustainability Risks
• Regulation on the Establishment of a Framework to Facilitate Sustainable Investment (Sustainability Taxonomy)
• Regulation on Low-Carbon Benchmarks and Positive Carbon Impact Benchmarks

Moreover, the EU Commission took further steps to embed sustainability in the EU’s financial sector’s regulations via:

• amendments to delegated acts under MiFID II and IDD to mandate the inclusion of environmental, social, and governance (ESG) factors and preferences in the advice that investment firms and insurance distributors offer to their clients;
• amendments to delegated acts under AIFMD, UCITS, MiFID II, Solvency II, and IDD to clarify how sustainability risks and other factors should be integrated into risk management;
• creation of an EU Ecolabel for Financial Products to help retail investors identify green financial products;
• creation of an EU Green Bond Standard to establish criteria necessary for a bond to be designated “EU Green Bond”;
• revision of the EU Commission’s guidelines on non-financial reporting to include climate-related information;
• clarification on sustainability within Solvency II, in particular regarding climate change mitigation; and
• clarification of undue short-term pressure on corporations from the financial sector with the aim of fostering sustainable corporate governance and attenuating short-termism in capital markets.

Although the inclusion of ESG Risk Disclosure in the EU Banking Package is not directly related to the EU Commission Action Plan, in practice it will contribute to the harmonization of sustainable finance legal frameworks across European markets.

For a complete and comprehensive analysis of each of the above-mentioned policy measures, please refer to the ECOFACT Policy Outlook Tool.